Stocks Close Lower As Market Digests Recent Gains And News  Image: Bigstock Stocks closed lower yesterday as it digests last week's spectacular rally, and the headwinds facing the market. Last week's more than 6% rally was a stunner. And could very well have been a turning point for the market after a challenging correction. Especially with markets so grossly oversold and valuations at more than 2-year lows. But inflation remains a very real concern. And rising oil and gas prices are only adding to those worries. Granted, some believe inflation may have already peaked. And recent downticks in the CPI and PPI reports support that narrative. But inflation still remains at 40-year highs. So a few tenths of a percent doesn't change the impact. Nonetheless, it is a step in the right direction. Two weeks from now, the Fed will make an announcement on rates where they are widely expected to raise the Fed Funds by 50 basis points. And then by another 50 basis points in July. The Fed has indicated that rates are likely to reach 1.9% this year, and then 2.8% next year, with no rate hikes in 2024. These benchmarks are important to note given that over the last 50 years, there's never been a recession (aside from 2020's pandemic-induced plunge), when the Fed Funds rate was under 4%. Still, some worry that raising rates too far and too fast could hurt the economy. But the biggest threat to the economy right now is inflation. And the economy is more than strong enough to withstand these rate hikes. So much so that Fed Chair, Jerome Powell, said that he expects the economy to "flourish in the face of less accommodative monetary policy." And St. Louis Fed President, James Bullard, recently said that he does not see a recession this year or next, and sees the economy growing by 2.5% to 3% this year, with a "pretty good second half," driven by "strong consumption this year." In fact, those sentiments were reflected in last week's FOMC minutes where the Fed acknowledged the strength in the economy, and expressed confidence in a rebounding Q2, and that they anticipate GDP to 'advance at a solid pace over the remainder of the year.' In the meantime, the market will turn its attention to the always important Employment Situation report on Friday. The labor market has been exceptionally strong with the unemployment rate near 50-year lows, and literally millions more jobs available than unemployed people to fill them. Yet another key component underscoring the strength in the economy. And why many market watchers believe stocks could be headed back up. If you share in that outlook and are looking for new stock picking ideas, be sure to read our latest commentary. Few things are better than picking up undervalued gems right before they explode higher. It's even more exciting when they're cheap in price too. I know some people get spooked when they see a low-priced stock. Just like some people get spooked when they see a high stock price. But the price of a stock tells you nothing about its valuation. Nonetheless, there's no denying the attraction of lower-priced stocks. Especially when you get in at just the right time and watch it soar. I love finding low-priced picks just as much as the next person. And if you like finding them too, make sure you read our latest commentary... 3 Keys to Undervalued Stocks with Big Upside Potential Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
Post a Comment
Post a Comment